Expect more of this. As GM and other automakers like Ford Motor Co. (NYSE: F) reduce auto shipments, rearrange their product mixes and re-evaluate global strategies, the larger suppliers to those companies will see various levels of hits against them. Unfortunately, the U.S. auto industry is in for more hits throughout the remainder of 2008.
American Axle has an estimated 3,650 hourly workers in the U.S. -- so giving buyout offers to over half of them is a pretty significant step. In addition to that, between 200 and 350 U.S. salaried jobs with American Axle are being eliminated. The company also announced that it was reducing its average labor-hour cost down from above the $73 level to somewhere in the $40 range, saving it in the neighborhood of $300 million per year.
MOST NOTEWORTHY: Anadigics, American Axle and Caterpillar were today's noteworthy downgrades:
Stephens downgraded shares of Anadigics (NASDAQ: ANAD) following the company's Q2 results, as they believe shares could trade sideways until the macro environment improves. The firm lowered their target to $9 from $14. Jefferies downgraded shares to Hold from Buy to reflect the company's lower than expected outlook. The firm lowered their target to $9 from $15.
Deutsche Bank cut American Axle (NYSE: AXL) to Hold from Buy to reflect the risk associated with the company's exposure to General Motors (NYSE: GM) and Chrysler. The firm lowered their target price to $7.50 from $11.
JP Morgan downgraded Caterpillar (NYSE: CAT) to Neutral from Overweight based on increasing macro headwinds and likely multiple pressure.
TheStreet.com's Jim Cramer says recent downgrades are killing whole industries, and they're coming at a terrible time.
You can't lose autos and aerospace. Yet that's what's happening. The devastating aerospace downgrade by Goldman yesterday had pin action galore, wrecking everything from United Tech (NYSE: UTX) (Cramer's Take) and Parker-Hannifin (NYSE: PH) (Cramer's Take) to BE Aerospace (NASDAQ: BEAV) (Cramer's Take). It took the whole frame down with it and made everything toxic. And it happens at a terrible time. It isn't like Honeywell (NYSE: HON) (Cramer's Take), which with a few days left in the quarter can come out defending itself. Goldman rolled a perfect strike.
MOST NOTEWORTHY: Alcatel-Lucent, Opnext and American Axle were today's noteworthy upgrades:
Goldman upgraded shares of Alcatel-Lucent (NYSE:ALU) to Neutral from Sell to reflect the recovery of U.S. corporate bond yields which they believe is positive for the company's long-term pension liability. Goldman also thinks analyst estimates may have bottomed.
Thomas Weisel raised Opnext (NASDAQ:OPXT) to Overweight from Market Weight after their research indicated an acceleration in optical communications component industry revenue growth.
Deutsche Bank upgraded American Axle (NYSE:AXL) to Buy from Hold to reflect the cost savings from the UAW contract.
OTHER UPGRADES:
MFA Mortgage (NYSE:MFA) was upgraded at Keefe Bruyette to Outperform from Market Perform.
Wachovia upgraded Knight Transportation Inc (NYSE: KNX) to Outperform from Market Perform as they expect the company to benefit earlier from capacity leaving the TL market.
KeyBanc raised Newfield Exploration Company (NYSE: NFX) to Buy from Hold based on production growth visibility, Rockies value, and increased estimates.
Deutsche Bank cut Anheuser-Busch Companies Inc (NYSE: BUD) to Hold from Buy on valuation following the recent rally spurred by takeover speculation. The firm believes the reported $65/share cash takeover offer by Inbev requires aggressive cost reduction and could harm the brands.
Morgan Stanley downgraded shares of GlaxoSmithKline Plc (NYSE: GSK) to Underweight from Equal Weight as they see risk to Street expectations for a U.S. Cervarix approval in 2009.
After hitting a one-year high of $43.20 in October, the stock hit a one-year low of $17.47 in March. This morning, GM opened at $18.31. So far today the stock has hit a low of $17.63 and a high of $18.34. As of 12:10, GM is trading at $17.63, down 80 cents (-4.0%). The chart for GM looks neutral and improving, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider a September bear-call credit spread above the $25 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in four months as long as GM is below $25 at September expiration. GM would have to rise by more than 43% before we would start to lose money. Learn more about this type of trade here.
GM hasn't been above $25 since February and has shown resistance around $21 recently. This trade could be risky if the US economy gets back on track, but even if that happens, this position could be protected by resistance GM might find around $23, where it topped out back in late April.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in GM or AXL.
General Motors (NYSE:GM) is recently down 84c to $17.59. GM announced it expects a pre-tax profit reduction of $1.8 billion in Q2 because of the just-ended American Axle (NYSE:AXL) strike. GM call option volume of 62,606 contracts compares to put volume of 29,536 contracts. GM July option implied volatility of 58 is near its 26-week average of 56 according to Track Data, suggesting non-directional price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Workers at U.S. auto parts maker American Axle & Manufacturing Holdings (NYSE: AXL) are set to return to work next week after approving a new four-year contract that contains steep pay cuts and other concessions. The three-months strike crippled crippled production at a General Motors (NYSE: GM) plant.
Six Flags Inc. (NYSE: SIX) said it will cut ticket prices by $10 at its St. Louis park as customers are cash strapped these days due to the tightening economic conditions and rising prices for everyday commodities. Meanwhile, Fitch Ratings downgraded some of Six Flags Inc.'s ratings and put them on Ratings Watch Negative due to a proposed notes exchange.
UAL Corp. (NYSE: UAUA) unit United Airlines and US Airlines Group (NYSE: LCC) are postponing the launch of new China routes because of high fuel costs after gaining approval for this coveted route only a few months ago.
The New York Times Bits blog says that according to several label executives, Apple Inc. (NASDAQ: AAPL) has approached some of the major music labels to try to expand the variety of ringtones and other musical features for the iPhone. The negotiations are very active right now and a final deal has not been set, but will likely be during the summer, but after June 9. Ringtones are quite a profitable market, and Apple wanting to have ringtones from major label makes total sense. Apple also wants to offer Answer Tones for the iPhone.
Intel Corp (NASDAQ: INTC) said Monday its venture capital arm has invested 50 million ringgit ($16 million) in Malaysia's Green Packet Berhad to help develop the country's first nationwide high-speed WiMAX network. Already earlier this month, Intel Capital along with Google Inc (NASDAQ: GOOG), Comcast Corp (NASDAQ: CMCSA), Time Warner Cable Inc (NYSE: TWC), and Bright House Networks agreed to invest $3.2 billion into a new company to speed up deployment of the next-generation mobile WiMAX network. But that's not all. Intel Capital also expects to close half a dozen deals in India this year, its regional head said on Monday.
Warren Buffett is apparently on the prowl for another acquisition. The Oracle of Omaha has begun his European tour Monday, looking for possible acquisitions for his Berkshire Hathaway Inc. (NYSE: BRK.A).
The Telegraph also reported that U.K.-based Imperial Tobacco Group Plc (NYSE: ITY) could conduct a GBP5B rights issue this week. The company has suggested that it needs the funds in order to retain its investment-grade credit rating following its acquisition of Altadis.
WEB SITES:
According toBloomberg, regulatory filings show that banks such as Citigroup Incorporated (NYSE: C) are failing to acknowledge at $35B of additional writedowns in their income statements.
Shares of the nation's largest automaker, General Motors Corp. (NYSE: GM), have been soaring in premarket despite posting a large first quarter loss, as the company surprised Wall Street by reporting a smaller than expected loss per share.
For the quarter, General Motors said it swung to a loss of $3.3 billion, hurt by continued weakness in U.S., waning demand for its sport utility vehicles, and a supplier strike. The company stated that the strike, which started two months ago at American Axle and Manufacturing Holdings Inc. (NYSE: AXL), came with charges that totaled $800 million, and slashed vehicles production by 100,000.
Weighed down by those costs, GM posted a net loss of $5.74 per share, compared with a profit of 11 cents a share a year-earlier. However, excluding one-time items, the automaker reported a loss of 62 cents per share. Going into today's earnings announcement, analysts had been expecting the company to show a much higher loss of $1.60 per share.
The company said it swung to a loss during the first quarter of $27 million, or 52 cents per share. This is a significant decline from the same period a year ago when the company was able to report a quarterly profit of $15.7 million. Its earnings per share also came in a year ago at 30 cents, exceeding analysts' forecast for a profit of "only" 23 cents per share. For this quarter, analysts were expecting earnings of $ 0.04 a share.
American Axle also announced a drop of 24% in its quarterly revenue, which slipped down to $587.6 million, compared with $802.2 million a year earlier. As a main factor that impacted the company's sales numbers, American Axle blamed the ongoing strike by its United Auto Workers employees that slashed revenue by $132.6 million and operating income by 56 cents per share. In addition, lower production volume of trucks and SUVs at General Motors Corp. (NYSE: GM) and Chrysler LLC contributed to a decline in sales.
The Wall Street Journal reported that Ford Motor Company (NYSE: F) CEO Alan Mulally isn't done cost-cutting. According to people close to the situation, Mulally is considering more job cuts, selling its Volvo brand and closing the troubled Mercury brand.
BHP Billiton Limited (NYSE: BHP) CEO Marius Kloppers strongly criticized Rio Tinto Plc (NYSE: RTP) and its CEO yesterday, the Financial Times reported. BHP Billiton has outperformed Rio Tinto in several areas, including share price appreciation and EPS growth, said Kloppers, adding, "On every metric I can envisage they [Rio] have been beaten."
OTHER PAPERS:
According to the Economic Times, AT&T Inc (NYSE: T) is reportedly in preliminary talks with Malaysia's Maxis Communications about buying its 74% stake in Indian cellular phone company Aircel, sources said.
The United Auto Workers union has rejected several "generous" benefit and wage proposals, according to American Axle & Manufacturing Holdings Inc (NYSE: AXL). In a statement yesterday, the Detroit News reported that American Axle said while tentative agreements had been reached on several issues, the UAW "repeatedly rejected" other proposals that were "considerably higher than the market rate."
General Motors Corp. (NYSE: GM) is not the only auto company in a world of hurt. Its vendors are as well. One of its larger suppliers, American Axle and Manufacturing Holdings, Inc. (NYSE: AXL) will likely be handing out buyout offers to a reported 2,000 U.S. workers. the official word will probably come tomorrow, when American Axlereports its Q2 earnings..gif){kind=logo}
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Shares of the nation's largest automaker, 
Here are some highlights from this past week's 
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Best & Worst in Money 2008: Most shocking financial collapse
Closing Bell: Stocks slump as AMD, AT&T, GM and Merck decline
Global Q&A: A rocky road, but profits ahead
